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Rating Action:

Moody's places Barclays PLC's ratings on review for downgrade due to ongoing credit challenges and ring-fencing implementation

22 Feb 2018

Barclays Bank PLC's baa2 standalone credit assessment, long- and short-term debt and deposit ratings also placed on review for downgrade

London, 22 February 2018 -- Moody's Investors Service ("Moody's") placed the Baa2 long-term issuer and senior unsecured debt ratings, and the Prime-3 short-term issuer ratings of Barclays PLC (Barclays) on review for downgrade.

The baa2 standalone baseline credit assessment (BCA), the A1 long-term deposit and senior unsecured debt ratings, the Prime-1 short-term deposit ratings and the A1(cr) long-term Counterparty Risk (CR) assessment of the group's main operating entity Barclays Bank PLC (Barclays Bank), were also placed on review for downgrade. Barclays Bank's Prime-1(cr) short-term CR assessment was affirmed.

"The review for downgrade on Barclays reflects the group's ongoing credit weaknesses and likely impact of ring-fencing implementation, which have been the main drivers for the negative outlook since last September", said Mr. Andrea Usai, Senior Vice President at Moody's.

During the review, the rating agency will reassess Barclays' overall credit profile given its ongoing credit challenges, particularly profitability, and evaluate the likely impact on the existing creditors of Barclays and Barclays Bank from the implementation of structural reforms ('ring-fencing') in the United Kingdom (Aa2 stable). Moody's expects to conclude the review over the next few weeks, when Barclays plans to transfer the group's ring-fenced operations to Barclays Bank UK PLC (Barclays Bank UK, provisional deposit rating (P)A1) from Barclays Bank, well ahead of the legislation coming into force on 1 January 2019.

The full list of affected ratings can be found at the bottom of this press release.

RATINGS RATIONALE

Barclays is reorganising its legal structure as a result of the forthcoming requirement to separate its domestic retail and business banking businesses from its other operations, under the UK's ring-fencing rules. Ring-fencing regulation aims to make economically vital banking services more resilient to financial shocks and will affect a small number of large UK banking groups, including Barclays.

Barclays' management has indicated that on 1 April 2018 Barclays Bank will become the group's non-ring-fenced bank. As such, its existing UK retail and business banking activities will be transferred to the newly formed ring-fenced bank, Barclays Bank UK. Barclays Bank will thus become more reliant on riskier wholesale and capital markets activities, increasing its risk profile and earnings volatility, as well as its dependence on wholesale funding, though its funding profile will remain diversified. These factors will lead to a weaker standalone credit profile for Barclays Bank.

During the review, Moody's will reassess the standalone credit profiles of both Barclays Bank, following the transfer of ring-fenced activities to Barclays Bank UK, and the broader Barclays group. This will include whether the degree of diversification of the group's operations going forward will generate a level of stable profits that is sufficient to maintain the one-notch positive adjustment for Business Diversification, currently included in the BCA for Barclays Bank.

Moody's currently expresses the credit profile of the overall Barclays group through the baa2 BCA of Barclays Bank, accounting for the vast majority of the group's total assets, which is under negative pressure and will be reassessed during the review period.

Barclays Bank's baa2 BCA is currently supported by the group's (1) strong franchises in UK retail, business banking and global credit cards; (2) strong loan quality, which is partly offset by tail risks from residual legacy assets, and pending high-profile litigations; (3) improved regulatory capitalisation, albeit potentially subject to various high-profile outstanding conduct and litigation issues; and (4) diversified funding and sound liquidity. The group's credit profile is however constrained by weak net profitability, which the rating agency expects to persist over the next 12-18 months, as well as the risks stemming from the group's sizeable capital markets activities, carrying market, counterparty and operational risks. Moody's expects that activities will expose the firm to higher earnings volatility.

As a result of ring-fencing implementation and the transfer of the retail and business banking business to Barclays Bank UK from Barclays Bank, Moody's will, for the first time, assign a separate notional BCA to the broader Barclays group. This will reflect the combined standalone credit profiles of the group's two main subsidiaries Barclays Bank and Barclays Bank UK, which will account for around 80% and 20% respectively of the group's total assets, post ring-fencing implementation.

The rating agency will also evaluate the expected loss for each instrument class issued by Barclays, Barclays Bank and Barclays Bank UK through its advanced Loss Given Failure (LGF) analysis. Moody's currently performs a single advanced LGF analysis on the Barclays' group, which includes all entities of the group that are domiciled in the UK. However, ring-fencing implementation will result in Moody's performing separate advanced LGF analysis for the holding company Barclays and the two main UK operating companies, Barclays Bank and Barclays Bank UK. The advanced LGF analysis for Barclays Bank and Barclays Bank UK will consider the degree of protection, which their creditors will derive from bail-in-able liabilities issued both to external investors and directly to Barclays. The outcome of the respective advanced LGF analysis for Barclays, Barclays Bank and Barclays Bank UK will also be informed by Moody's estimated loss rate for each of these entities at the point of failure.

As part of its support analysis, Moody's will also assess whether Barclays Bank will benefit from any affiliate support from Barclays Bank UK, taking into account the limitations to transfers of financial resources across the group, following ring-fencing implementation.

Finally, Moody's will assess the likelihood of a continued assumption of a moderate probability of government support for Barclays Bank, as the group's non ring-fenced bank.

WHAT COULD MOVE THE RATINGS UP/DOWN

The review for downgrade on the ratings for Barclays and Barclays Bank indicates that there is a likelihood of rating downgrades upon conclusion of the review.

The ratings for Barclays Bank could be downgraded following a downgrade of its baa2 BCA, a weaker assessment of creditor protection resulting from the advanced LGF analysis or a reduction of Moody's assessment of probability of government support assumptions. Barclays Bank's baa2 standalone BCA could be downgraded due to both ongoing credit weaknesses and the planned transfer of its existing retail and business banking activities to Barclays Bank UK, further weakening its standalone credit profile. As Moody's indicated previously, Barclays Bank's BCA could also be downgraded in case of: (1) a deterioration in the operating environment beyond Moody's current expectations, (2) conduct and litigation charges that are materially higher than Moody's current estimates, (3) an increase in risk appetite or leverage, and (4) a material deterioration in the group's liquidity or capital positions.

Barclays Bank's ratings could be confirmed if Moody's were to conclude that the group's current credit weaknesses were likely to be addressed over the short- to medium term, including restoring profitability on a sustainable basis.

The ratings for Barclays could be downgraded, following Moody's assessment of a weaker standalone credit profile of the group, given its ongoing credit challenges, or if it were to assess that its creditors were to be impacted by lower protection, as part of its advanced LGF analysis assessment.

The ratings for Barclays could be confirmed if Moody's were to assess that its credit weakness would be addressed in the short- to medium-term, or that these would be mitigated by excess financial resources, which it may hold at the level of the holding company.

LIST OF AFFECTED RATINGS

Issuer: Barclays Plc

Placed On Review for Downgrade:

....LT Issuer Rating, currently Baa2, Outlook changed To Rating Under Review From Negative

....ST Issuer Rating, currently P-3

....Senior Unsecured Regular Bond/Debenture, currently Baa2, Outlook changed To Rating Under Review From Negative

....Subordinate, currently Baa3

....Pref. Stock Non-cumulative, currently Ba2 (hyb)

....Senior Unsecured MTN Program, currently (P)Baa2

....Subordinate MTN Program, currently (P)Baa3

....Other Short Term Program, currently (P)P-3

....Senior Unsec. Shelf, currently (P)Baa2

....Subordinate Shelf, currently (P)Baa3

....Commercial Paper, currently P-3

Outlook Actions:

....Outlook, Changed To Rating Under Review From Negative

Issuer: Barclays Bank PLC

Placed On Review for Downgrade:

....LT Issuer Rating, currently A1, Outlook changed To Rating Under Review From Negative

....LT Bank Deposits, currently A1, Outlook changed To Rating Under Review From Negative

....ST Bank Deposits, currently P-1

....Senior Unsecured Regular Bond/Debenture, currently A1, Outlook changed To Rating Under Review From Negative

....Subordinate, currently Baa3

....Junior Subordinate, currently Ba1 (hyb)

....Senior Unsec. Shelf, currently (P)A1

....Pref. Stock, currently Ba1 (hyb)

....Pref. Stock Non-cumulative, currently Ba2 (hyb)

....Senior Unsecured MTN Program, currently (P)A1

....Subordinate MTN Program, currently (P)Baa3

....Other Short Term Program, currently (P)P-1

....LT Deposit Note/CD Program, currently (P)A1

....Commercial Paper, currently P-1

....BACKED Commercial Paper, currently P-1

....Other Short Term, currently P-1

....Adjusted Baseline Credit Assessment, currently baa2

....Baseline Credit Assessment, currently baa2

....LT Counterparty Risk Assessment, currently A1(cr)

Affirmations:

....ST Counterparty Risk Assessment, Affirmed at P-1(cr)

Outlook Actions:

....Outlook, Changed To Rating Under Review From Negative

Issuer: Barclays Bank PLC, Australia Branch

Placed On Review for Downgrade:

....Senior Unsecured Regular Bond/Debenture, currently A1, Outlook changed To Rating Under Review From Negative

....Senior Unsecured MTN Program, currently (P)A1

....Other Short Term Program, currently (P)P-1

....Commercial Paper, currently, P-1

....LT Counterparty Risk Assessment, currently A1(cr)

Affirmations:

....ST Counterparty Risk Assessment, Affirmed at P-1(cr)

Outlook Actions:

....Outlook, Changed To Rating Under Review From Negative

Issuer: Barclays Bank of Canada

Placed On Review for Downgrade:

....BACKED Commercial Paper, currently P-1

....LT Counterparty Risk Assessment, currently A1(cr)

Affirmations:

....ST Counterparty Risk Assessment, Affirmed at P-1(cr)

Issuer: Barclays Bank plc Hong Kong

Placed On Review for Downgrade:

....LT Counterparty Risk Assessment, currently A1(cr)

....Commercial Paper, currently P-1

Affirmations:

....ST Counterparty Risk Assessment, Affirmed at P-1(cr)

Issuer: Barclays Bank plc, Cayman Branch

Placed On Review for Downgrade:

....Commercial Paper, currently P-1

Issuer: Barclays Bank PLC, New York Branch

Placed On Review for Downgrade:

....LT Counterparty Risk Assessment, currently A1(cr)

....Commercial Paper, currently P-1

Affirmations:

....ST Counterparty Risk Assessment, Affirmed at P-1(cr)

Outlook Actions:

....Outlook, Changed To Rating Under Review From Negative

Issuer: Barclays Bank PLC, Paris

Placed On Review for Downgrade:

....LT Bank Deposits, currently A1, Outlook changed To Rating Under Review From Negative

....ST Bank Deposits, currently P-1

....Senior Unsecured MTN Program, currently (P)A1

....LT Counterparty Risk Assessment, currently A1(cr)

Affirmations:

....ST Counterparty Risk Assessment, Affirmed at P-1(cr)

Outlook Actions:

....Outlook, Changed To Rating Under Review From Negative

Issuer: Barclays Bank PLC, Singapore

Placed On Review for Downgrade:

....Commercial Paper, currently P-1

....LT Counterparty Risk Assessment, currently A1(cr)

Affirmations:

....ST Counterparty Risk Assessment, Affirmed at P-1(cr)

Issuer: Barclays Bank PLC, Tokyo

Placed On Review for Downgrade:

....Commercial Paper, currently P-1

....LT Counterparty Risk Assessment, currently A1(cr)

Affirmations:

....ST Counterparty Risk Assessment, Affirmed at P-1(cr)

Issuer: Barclays US Funding LLC

Placed On Review for Downgrade:

....BACKED Commercial Paper, currently P-1

Issuer: Barclays Capital (Cayman), Ltd.

Placed On Review for Downgrade:

....BACKED Senior Unsecured MTN Program, currently (P)A1

....BACKED Subordinate MTN Program, currently (P)Baa3

....BACKED Other Short Term Program, currently (P)P-1

Outlook Actions:

....Outlook, Changed To Rating Under Review From Negative

Issuer: Barclays Financial LLC

Placed On Review for Downgrade:

....BACKED Senior Unsecured MTN Program, currently (P)A1

....BACKED Other Short Term Program, currently (P)P-1

Outlook Actions:

....Outlook, Changed To Rating Under Review From Negative

Issuer: Barclays Overseas Investment Company B.V.

Placed On Review for Downgrade:

....BACKED Junior Subordinate, currently Ba1 (hyb)

Outlook Actions:

....Outlook, Changed To Rating Under Review From Negative

Issuer: Barclays US CCP Funding LLC

Placed On Review for Downgrade:

....Commercial Paper, currently P-1

Issuer: Woolwich plc

Placed On Review for Downgrade:

....BACKED Subordinate, currently Baa3

....BACKED Junior Subordinate, currently Ba1 (hyb)

Outlook Actions:

....Outlook, Changed To Rating Under Review From Negative

PRINCIPAL METHODOLOGY

The principal methodology used in these ratings was Banks published in September 2017. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Andrea Usai
Senior Vice President
Financial Institutions Group
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Ana Arsov
MD - Financial Institutions
Financial Institutions Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Releasing Office:
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

No Related Data.
© 2019 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

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